Competition Heats Up in Home Health M&A Market

By Kourtney Liepelt | January 5, 2016

Merger and acquisition activity within the home health sector surged in 2015, and industry professionals predict a robust year ahead, as well. Property valuations may be preventing some major players from completing desired deals, though, and word is that pricing has yet to reach a peak.

Months after one of the nation’s largest home health and hospice providers, LHC Group Inc. (Nasdaq: LHCG), indicated its intent to grow through larger deals, the company’s leader cited high prices and a competitive market as reasons for being outbid on certain acquisitions, speaking at the Oppenheimer 26th Annual Healthcare Conference in December. Still, one expert says the market hasn’t necessarily peaked in terms of valuations.

“Overall, it was an extremely positive year in terms of M&A for home health care,” Kevin Palamara, managing director at M&A advisory firm Provident Healthcare Partners, tells Home Health Care News. “There were a lot of notable transactions.”

Namely, Palamara mentioned the acquisition of Gentiva Health Services, Inc. by Kindred Healthcare Inc. for $1.8 billion, a deal completed in early 2015. He also pointed to Amedisys Inc.’s 300-deal pipeline and its $63 million purchase of Infinity HomeCare, as well as HealthSouth Corporation’s (NYSE: HLS) $170 million acquisition of CareSouth Health System Inc.

“We saw a lot of activity for sizable providers—a real change from what you saw going back a few years,” Palamara says.

But even the bigger players have found themselves struggling to compete in such a frothy market.

“We’ve bid on some of the ones you’ve seen go through, and we just were a little bitter,” LHC Group CEO Keith Myers said. “Prices are really high. The market is competitive.”

This type of deal environment has prompted LHC Group to carry out a more “balanced attack” with one-off type deals, though the company does maintain two pipelines—one for smaller deals valued at $20 million or less, and another for bigger transactions managed separately, Myers said at the event.

“I know what makes the headlines are the larger transactions, but LHC Group has a long history of having a balanced attack,” he said. “We’ve focused our effort on the small mom-and-pop agencies, and then a different track that pursues the larger transactions.”

Competition highly depends on the market, Palamara says, but he agrees with Myers in that steep valuations have narrowed some providers’ chances at certain acquisitions. And new contenders in the form of senior living providers buying into home health and interest from the private equity community makes for a crowded playing field, as well.

From a pricing perspective, though, he says buyers and sellers are at least on the same page in terms of what to expect in acquisitions.

“One thing that’s helped is stability in terms of where reimbursement is heading,” Palamara tells HHCN. “Before, there was a disconnect in valuations. Today, it’s a bit more simplistic, and there’s more certainty within the marketplace.”

All things considered, Palamara says he doesn’t expect M&A activity to slow down drastically anytime soon, noting that regional agencies like LHC Group remain in a strong capital position—a good sign for the marketplace moving forward.

“I don’t think we’ve peaked,” he says. “There’s still a good window for the next six to 12 months.”